A closed market.
This is how the grain market seems to be right now. It is being rocked in all directions. However there are no stable trends or volatility. The June report of the USDA WASDE (we analyzed it last Friday), as usual, turned out to be neutral. After the radical May one, which for the first time provided crop forecasts for the next season, the changes were insignificant. Working the market this week will be a special factor - weather, and a near-equilibrium balance of profile forces.
Working off expectations of dry weather in the U.S. at the end of the month was accounted for yesterday in the rise in corn prices. They are now close to April's and there is unlikely to be any serious upside potential yet. Another threat to prolong the "grain initiative", which even the UN Secretary General is engaged in removing, is believed to be ignored by the market. We have written many times: now, at the end of the season, there is no special need to preserve grain exports from Ukrainian deep-sea ports, and the aggravation of the situation on the front line makes this route of grain export too risky. Insurance payments will make deliveries unprofitable even without passing the Turkish-controlled straits.
Two major wheat factors, we believe, will "collapse" in the next week. The Indian government imposed restrictions until March 31 next year (general elections!) on domestic wheat stocks, hoping in this way to stop the rise in grain prices. Within a month they had risen 8.1%. Such a measure has not been used since 2008.
The rise occurred despite the expected record production of wheat in the beginning of the season (112.7 million tons by national estimates and 113.5 by the USDA). The country's food minister said, according to Reuters, that 1.5 million tons of wheat from the State Reserve will be supplied to wholesale consumers to stabilize flour prices. Traders will be subject to a 3,000-ton warehouse limit; 10 tons in retail stores, 10 tons in each outlet of a large chain and 3,000 tons in retailers' warehouses. According to the minister, "unscrupulous elements have been hoarding wheat, so prices are going up". The government expects that this step will bring more wheat to the market and prices will begin to fall. A similar measure is being discussed, according to the Tribune, for rice. Wheat purchases for the State Reserve this year may be down 20% from the original estimate, following a jump in local prices.
Counter, to this bearish factor, is the European. COCERAL, the European agricultural trade association, downgraded its forecast for grain production to 296.7 million tons in the EU + UK in 2023 from a March estimate of 303.5 million tons. "The main reason for the revision is the current drought in the northern half of the continent." The crop, though, will be larger than last year's 291.1 million tons - also affected by the drought. Soft wheat production is expected to be 142.4 million tons, up from 144.5 million tons in the previous forecast. This is practically the level of last year.
Thus, assuming that the market has fully worked off the Kakhovskaya HPP disaster and the threat of the "grain initiative" is taken into account, there remains a balance of these two factors, and unbalanced - the weather.